Interest-only lending plummets for new loans

Alex Ritchie

Dec 6, 2017( 3 min read )

The number of people taking out interest-only loans has been slashed as new borrowers opt to pay down their debt.

APRA’s September Quarterly ADI Property Exposures data released today shows interest-only loans have fallen to 16.91 per cent of new lending, down from 30.50 per cent last quarter, a drop of 44.84 per cent and a historic low in terms of percentage share.

The big four banks have reduced the share of new interest-only loans to 16.69 per cent, down from 31.47 per cent in the June quarter, a drop of 48.65 per cent.

RateCity.com.au Money Editor Sally Tindall said the results represented an emphatic win for APRA who, in March of this year, demanded banks limit interest-only terms to 30 per cent of all new lending.

“Today’s data is a slam dunk for APRA,” she said.

“This has been a colossal turnaround in the way banks view interest-only terms.

“In June 2015, 45.65 per cent of all new loans approved by banks were interest-only. Today this has been reduced to under 17 per cent.

“The RBA will also be relieved to see people committing to paying down their debt. Our household debt to income ratio is at a record high.

“This move away from interest-only lending should help bring this ratio down to more realistic levels.

“While new lending has been slashed, the banks still have a way to go to budge existing mortgage holders,” she said.

Today’s APRA figures show that 35.35 per cent of all loans are still interest-only, a modest six per cent drop over the quarter.

RateCity data shows that on average banks are charging between 30 and 35 basis points more for interest-only lending, however this hasn’t promoted the majority of existing borrowers to start paying down their debt.

This is an information service. By browsing on the website and/or using our search tools, you are asking RateCity to provide you with information about products from multiple financial institutions. We will try to show you a range of products in response to your request for information. The search results do not include all providers and may not compare all features relevant to you, for further details refer to our FSCG. We are not a credit provider, and in giving you product information we are not making any suggestion or recommendation to you about a particular credit product. If you decide to apply for a product, you will deal directly with a financial institution, and not with RateCity. Rates and product information should be confirmed with the relevant financial institution, and you should review the PDS before you decide to purchase. See our terms of use for further details. This advice is general and has not taken into account your objectives, financial situation or needs. Consider whether this advice is right for you.